Gold ETFs attract Rs 4,814-cr in 2021 on inflation, higher mkt valuations

Gold exchange traded funds (ETFs) remained in favour in 2021 with the segment attracting Rs 4,814 crore primarily due to firming of inflation and elevated market valuations.

Although, the inflow was lower compared to Rs 6,657 crore seen in 2020, data with Association of Mutual Funds in India (Amfi) showed.

The global recovery and improved investor sentiment resulted in gold ETF flows sobering down in 2021 compared to the pandemic year.

Quantum Mutual Fund MD and CEO Jimmy Patel said the category may see continued interest in 2022 amid sticky inflation and the Federal Reserve attempting to catch up to it, possibly disrupting growth and markets.

"That said, tightening of monetary policy by the Fed will be supportive of the dollar and US yields, which will be a headwind for gold. The conflicting forces will keep gold in a consolidation mode for some time making it conducive for investors to accumulate gold," he added.

Flows into gold ETFs in 2020 were the result of risk aversion due to the Covid-19 pandemic as well as the coordinated easing of monetary policies and softening of global interest rates which made gold attractive.

"In 2021, gold remained in favour mainly due to the firming of inflation and elevated market valuations that pushed investors to hold gold to preserve their capital against a possible market downturn," Patel said.

Himanshu Srivastava, Associate Director Manager Research, Morningstar India, said that gold ETFs continued to attract investor attention throughout the year and that too when equity markets picked up pace.

The segment witnessed just one month of net outflow, which was in July 2021 of around Rs 61.5 crore. This points towards investors liking for yellow metal as part of their investment portfolio.

The inflow helped in pushing assets under management of gold funds by 30 per cent to Rs 18,405 crore at the end of December 2021 from Rs 14,174 crore a year ago.

Gold, with its superlative performance over the last few years, has attracted significant investor interest and the consistent surge in their folio numbers is a testimony of the same.

In the year 2021, the folio numbers in gold ETFs surged from 8.87 lakh in December 2020 to 32.09 lakh in December 2021.

Investments into ETFs that track the yellow metal have been witnessing a steady uptick since August 2019.

However, the asset class witnessed net outflows of Rs 141 crore in November 2020, Rs 195 crore in February 2020 and Rs 61.5 crore in July 2021.

Srivastava said that gold functions as a strategic asset in an investor's portfolio, given its ability to act as an effective diversifier, and alleviate losses during tough market conditions and economic downturns. This is where it draws it's safe-haven appeal.

During the challenging investment environment in the recent past, gold emerged as one of the better performing asset classes, thus proving its effectiveness in investors' portfolio. This aspect has not gone unnoticed by investors, which is evident from rather consistent net inflow into gold ETF category, he added.